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The utility of offers of compromise in Class 3 proceedings

On 13 March 2014, the NSW Land and Environment Court dismissed a costs application made by the acquiring authority, Sydney Water Corporation (SWC), following the Court’s determination of the substantive Class 3 proceedings: Tempe Recreation Reserve Trust v Sydney Water Corporation (No 2) [2014] NSWLEC 23. In particular, the costs application sought an order that the dispossessed landowner, Tempe Recreation Reserve Trust, pay SWC’s costs of the proceedings on an indemnity basis from the day after SWC’s offer of compromise.

Despite the fact that SWC’s offer of compromise had the “hallmarks of compliance” with rule 20.26 of the Uniform Civil Procedure Rules 2005(NSW) (UCPR) and was a genuine offer, the Court held that SWC was not entitled to its costs on an indemnity basis under rule 42.15 because the Court’s determination was not “less favourable” to the Trust than the terms of the offer. If the Court was in error and rule 42.15 was in fact engaged, the Court exercised its discretion to “otherwise order” and declined to make an order for indemnity costs against the Trust.

BACKGROUND

On 24 December 2013, having regard to the matters set out in section 106A of the Crown Lands Act 1989 (NSW) (CL Act), the Court assessed the loss to the Trust as a result of the compulsory acquisition of an easement for a water supply pipeline in the amount of $100,000, plus disturbance costs in the amount of $6,000, and ordered SWC to pay the Trust’s costs of the proceedings: Tempe Recreation (D.500215 & D.1000502) Reserve Trust v Sydney Water Corporation [2013] NSWLEC 221. More details about this decision are set out in an earlier Corrs In Brief.

Following this determination, SWC filed a costs application seeking an indemnity costs order from the day after SWC’s offer of compromise. On 13 February 2013, SWC made an offer of compromise in the amount of $268,000 in accordance with rule 20.26 of the UCPR (Offer). In the circumstances, SWC submitted that the Trust obtained less favourable relief than the terms of the offer and, consequently, that SWC was entitled to an indemnity costs order under rule 42.15 of the UCPR.

DECISION

Whether rule 42.15 was engaged

The Court held that rule 42.15 was not engaged because the Court’s determination of compensation was not “as favourable or less favourable” to the Trust than the terms of the Offer. Although the Trust was ultimately awarded less monetary compensation by the Court than the Offer, the interpretation of the easement and the scope of works permitted by the easement would not have been resolved without the determination by the Court in the substantive proceedings. In the circumstances, Biscoe J observed that the Trust received a “more valuable” outcome from the Court’s determination than the Offer which only provided a “dollar amount”.

Discretion to "otherwise order"

Discretion If the Court was in error in respect of the engagement of rule 42.15, the Court also considered whether it would exercise its discretion and “otherwise order”. The Court held that the factual circumstances of the case provided a sufficient basis for an "otherwise order" for the following reasons:

Firstly, the exceptional costs principle that guides the exercise of the Court's discretion when deciding whether to award costs to an applicant in compulsory acquisition compensation proceedings also guides the exercise of the Court's discretion to make an "otherwise order" under r 42.15(2). The exceptional costs principle is that an applicant for compensation in respect of compulsory acquisition proceedings should usually be entitled to recover its costs of the proceedings, having acted reasonably in pursuing the proceedings and not having conducted them in the manner which gives rise to unnecessary delay or expense. The Court held that the Trust had acted reasonably in pursuing the proceedings and did not engage in conduct that gave rise to unnecessary delay or expense.

Secondly, it was reasonable and in the public interest that the issue of interpretation of the easement be resolved. The interpretation issue was only resolved as a consequence of the proceedings continuing to trial.

Thirdly, SWC's case changed between the date of the offer of compromise and the determination of the Court, which was a sufficient basis for an order denying the SWC's entitlement to indemnity costs.

Fourthly, because this was the first time the Court has considered the operation of section 106A of the CL Act, it was very difficult to answer whether the offer of compromise was one that should have been accepted by the Trust.

IMPLICATIONS

This case demonstrates that, even if a respondent in Class 3 compensation proceedings issues an offer of compromise in compliance with rule 20.26, the respondent will not necessarily be entitled to its costs of the proceedings on an indemnity basis from the day after the offer date.

In order to obtain such an order, the respondent must establish that:

the order or judgment was “as favourable or less favourable” than the offer;

the offer was capable of acceptance by the applicant; and

there are insufficient reasons for departing from the respondent’s prima facie entitlement to an indemnity costs order.

In determining whether an order or judgment is more or less favourable than an offer, the Court will consider both monetary and non-monetary factors, and weigh up those competing factors.